How common is transaction laundering? All high risk merchant services providers will offer similar responses from very to extremely. We’re unable to prove cases of such, but we’d venture to guess that a week doesn’t go by without our account managers receiving 3-5 inquiries from merchants with suspicious websites that show the signs of criminal activity. Our response is simply that we have no solution for them.
When we first blogged about this subject in 2016, we were stunned as to how common it was along with the difficulty to prove it. We indicated that the problem of transaction laundering would grow exponentially, and we were right.
‘Businesses’ commonly used to mask transactions
According to a recent article by Alex Rolfe of Payments Cards & Mobile, the most common business ‘front’ for criminals who launder transactions is booksellers. We’ve never proven a case of transaction laundering, but we’ve been approached by many ‘merchants’ whose websites and/or business models display disturbing clues which do not pass our underwriting standards.
Bookselling may be the most common model for criminal laundering, but we’ve seen several other business models – for what we believe – were instances of such:
- Online dumpster sales: Before this ‘merchant’ was able to begin processing, a quick phone call from our underwriting staff found that his online dumpster company was cover for a tech support business (the merchant was attempting to circumvent paying tech support merchant account rates).
- School supplies: This merchant had a clear, simple-to-use website with his ‘products’ neatly displayed. The red flag for us was the ridiculous prices he was charging for items anyone could purchase at a T.J. Maxx or Marshall’s for a fraction of the cost.
- Beauty products: A colleague once told us of a merchant using online beauty products to sell illicit videos containing bestiality.
- Weight loss: A merchant once aggressively approached us about needing a merchant account for his alternative weight loss business that had recently been shut down by another bank. He contacted us every day during the underwriting process, and we found a solution for him. Upon a more extensive review by our underwriters, however, we reconsidered when we found some questionable products and services on his website.
There are times high risk merchant services providers must air on the side of caution.
- Spices, incense, potpourri: Another colleague, whose company specializes in identifying transaction and online money laundering, told us of a merchant peddling spices, incense and potpourri as cover for illegal drugs. Once discovered, his merchant account was terminated. Two months later, the website reappeared and was taking transactions until it was rediscovered and terminated again.
This story is an unfortunate example of the vicious cycle that is transaction laundering. The fraudulent website is functional until being revealed, is closed down, then launches again within a few weeks. The key to stopping such activity is robust underwriting.
One thing online launderers have in common
We’re not claiming that all prospective merchants requesting virtual terminal access are laundering transactions, but we’ve found that most (if not all) online launderers will request a virtual terminal for his/her merchant account.
It makes perfect sense. While a fraudster has his/her website for the acquiring bank and payment processor to examine, it is the virtual terminal privileges that enable them to exploit their crimes. The website often serves as a mere front for legitimacy. Behind the scenes are call centers taking transactions over the phone for the sale of illicit goods – often drugs and other illegal substances.
“This is why a virtual terminal merchant account – especially offshore – is really difficult to approve,” said Wendy Jacques, Sales Manager at Instabill. “The website is merely for the bank to see, but a lot of (launderers) have call centers calling people. When a merchant has the ability to take a credit card payment over the phone, the bank doesn’t know what the merchant is selling.”
There are several other signs high risk merchant services providers can consider:
- In the boarding process, a merchant slow to offer evidence of sufficient payment processing history or forms of identification.
- A high number of negative reviews on complaint boards such as the Better Business Bureau, Google and/or Yelp.
- Conversely, an abundance of suspiciously positive reviews.
- A hastily put together website, underdeveloped with errors such as missing photos and links as well as stock photos with watermarks.
- Merchant’s checkout page redirects to a different website.
- A merchant of a low risk industry, such as the aforementioned dumpster merchant, needing a merchant account from a high risk merchant services provider.
Law enforcement is coming around
Until recently, the only entity enforcing against transaction laundering were the credit card issuers. According to Mr. Rolfe’s article, however, the U.S. Federal Trade Commission is stepping up its efforts in enforcement and prosecution, evidenced by its suit of Money Now Funding, which is ongoing. We hope the FTC’s case against Money Now Funding is an indication of things to come.
The best high risk merchant services providers navigate an often slippery slope
The arena in which high risk merchant services providers work can be a slippery slope. Instabill has been in operation since 2001 and has stood the test of time in oftentimes a turbulent industry constantly changing.
We don’t believe in wasting time. With a 5-10 minute conversation, we’ll know whether or not we can arrange for a payment processing solution for your business. Speak with a live merchant account representative at 1-800-530-2444 and discuss the possibilities.
